Hi ,
These are just a few of the basic, fairly conservative, small-dollar B2C metrics working for balance sheet lenders today.
Small-Dollar, Payday, Title Loan, Installment Lending… Key Metrics & Profits
[For details and storefront vs online installment loan lending see page 183 of our Course: “The Business of Lending Money to the Masses Profitably” click here for our Course: The Course.
- New loan acquisition costs: $45 -$87
- ACH Processing fees: $.35 -$.50 per transaction
- Outsourced call center service: $12 – $14 per funded loan or $14 per hour per seat.
- Overhead cost per funded loan: $30
- Reacts (successful returning customers): 26% beginning month 5
- Average fees earned per funded loan: $90
- Average loan amount: $300 to $440. Five years ago, the average was $275. Top loan amounts are increasing because Lender marketing costs are increasing.
- Consumer loan due dates determined by payday following loan origination.
- Consumer loan fees are 30% of the remaining principal
- 83% of consumers choose to renew their existing loan.
- Less than 30% of existing Lenders enforce a principal pay down. Some Lenders enforce principal pay down beginning with the 2nd, 3rd, or 4th renewal. More than a few Lenders allow the loan to renew over and over with zero principal pay down – the decision is left to the consumer. (We advise a strong principal reduction strategy.)
- A well-run portfolio will renew a loan 4 to 8 times and generate $400 to $720 in fees.
- Loan application scrubbing: $1.50 to $4 each before funding (Determined by which/how many sub-prime consumer databases you use. Refer to “Resources.”)
- In general, the more $$ you pay for a new consumer loan lead, the less likely this potential customer has been “hammered” by previous contacts with your competitors. However, this will put you in the $100+ per lead range, so experiment with $5 – $10, $30 – $50, $50 – $85, and $85 and up. (Read on for more on this topic.)
- Only 8% to 17% of your customers will pay off their entire principal and fees on the due date of their first loan with you.
- For your pro forma, use 21 days in the month.
- Learn to contact your loan customer THE DAY BEFORE THEY GET PAID! Sure, 5-day, 3-day reminders are a good practice. But the critical day is just before they’ll have money in their account. Text messages OK.
- 63% of your customers will pay their fee and reduce the principal on their first loan with you. For success, your goal is no more than a 25% first-time default rate. If your model is exceeding this, adjust! 15% first-payment default rate is your goal.
- Lead conversion rate: this is all over the map! It depends on the source of the lead, how quickly your call center engages the customer (should be under 20 seconds), new versus returning customer, etc. A 40% blended rate of new and returning customers would be considered good.
The reality is that you must have loan management software (LMS) that can generate reports on a daily, weekly and monthly basis that enables your Team to analyze, test, and identify lead sources, track campaigns, and evaluate all the other metrics provided above! Your landscape WILL change. YOU MUST TEST! The
process is simple: keep making and testing changes, continue doing what works FOR YOU, and stop doing what doesn’t. Sounds simple, right?
REMEMBER: You want to start a small-dollar loan business? Do you want to improve your existing loan business? Need consulting on a specific aspect of your small-dollar loan business? ? Need mystery shopping to evaluate your business by a highly experienced member of our Team? Reach Out! TrihouseConsulting@gmail.com
We have a Team of professionals with tremendous experience in “the business of lending to the masses.”
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